Norges Bank likely to hold rate at 0.50 pct at Thursday's meet, could reiterate strong easing bias

Norway's LFS unemployment was unchanged at 4.6 percent from March to April and down 0.1 percentage points since January (last three months). Unemployment in March was revised down from 4.7 to 4.6 percent. Data beat expectations for a reading of 4.7 percent.

Employment decreased by 3,000 people from March to April, and 11,000 from January to April. The weak employment figures are in line with the weak growth outlook for the economy.

Norges Bank expects unemployment to top out this year at 4.6 percent, and current figures are well in line with this estimate. Higher oil prices and reduced fears of serious second-round effects have lowered the risk to the Norwegian economy. At the same time, housing prices and household borrowing have risen more than expected, rekindling fears of a build-up of financial imbalances. Developments since March have been close to the central bank's projections and hence it will be hard to strike as dovish a tone at Thursday's meet.

Markets are pricing in around 2bp worth of cuts for Thursday, 10bp for the September meeting and an accumulated 25bp on a 12M horizon (the point where the most easing is priced in).

"We expect Norges Bank to leave the policy rate unchanged tomorrow, but that they will lower the key policy rate in September," said DNB Markets in a report.